5.47pm: One last thing... our man in Madrid, Giles Tremlett, was at the briefing with Catalan leader Artur Mas that has caused such a fuss today. He writes:

Reuters did certainly not quote Artur Mas wrongly or out of context. Some people, however, seem have misinterpreted the phrase: "...we need to make payments at the end of the month". It is not a reference to the month of May. Mas was talking about the end of every month. I am not sure that makes it any more reassuring.

Mas was quite happy to go on-the-record about Catalonia's need for financing. This is no secret. It needs some €13bn and other regional governments in Spain need around €24bn more. A further €15bn will be needed to finance their joint deficit this year, assuming they hit their strict targets. If they fail, even more will be needed.

Spain's government, meanwhile, is dillydallying about whether it will issue so-called "hispanobonds" to cover the financing needs of regional governments, which are largely shut out of the markets. Bank loans, existing government credit lines and patriotic bonds bought by Catalans and others can probably only cover part of what is needed.

Reports suggest that finance minister Luis de Guindos and budget minister Cristóbal Montoro do not see eye-to-eye on this.

Mas was happy to explain his support for hispanobonds because financing has become so difficult, hence the worries about paying bills and the damage this can do to what he called "the real economy".

Mas's basic argument was that just as most of Spain is crying out for eurobonds, so that Germany can back borrowing needs and reduce the interest rates paid in southern Europe, so regional governments want hispanobonds so that the Spanish government can back their debt and bring down borrowing costs.

5.28pm: And we'll close the day with a video from Japanese pop group AKB48.

As we reported earlier, these glossy-haired young women have been enlisted by the Japanese government to help sell "reconstruction bonds" aimed at financing projects in regions hammered by last year's quake-tsunami disaster.

Thanks for all your comments, we'll be back on Monday.

5.00pm: The Spanish government is poised to invest up to €19bn in its most troubled lender, Bankia, the FT is reporting. Miles Johnson in Madrid and Patrick Jenkins in London write:

The injection, which would give the state as much as 90% control of Spain's second biggest domestic lender, is set to be confirmed later on Friday evening.

4.33pm: Greece is a failed state said Deutsche Bank's co-chief executive at a conference in Berlin today. (Read the full-story on Bloomberg). Clearly not a man to mince his words, Juergen Fitschen said:

Greece is the only country, I feel, where we can say 'it's a failed state,' it is a corrupt state, corrupt as far as its political leadership is concerned and obviously other people had to be willing to support this.

4.25pm: Italian Prime Minister Mario Monti has invited new French President Francois Hollande, German Chancellor Angela Merkel and Spanish Prime Minister Mariano Rajoy for a summit in Rome to take place after the Greek elections on June. Reports suggest Merkel, for one, has accepted the invite.

4.02pm: Worth taking the retraction of the Catalan president's comments (see 3.54pm) with a pinch of salt, as one trader points out...

Catalonia - says the comments from the President earlier were taken out of context !No one believes them!

3.56pm: Ouch. Athens stock exchange closed down 3.45%, its lowest level since 3 January 1990. This week it lost a whopping 11.8%.

3.54pm: Back to the Catalonia story (see 1.44pm). Dow Jones is now reporting that the earlier comments from the region's president were taken "out of context".

3.25pm: And back to the eurobond debate, which is fast descending into a slanging match. Our European editor Ian Traynor, who is based out in Brussels, reports:

Bundesbank boss (and former Merkel adviser), Jens Weidmann, was characteristically dismissive of eurobonds in an interview just published in Le Monde, but also deliciously waspish on the level of debate among eurozone and EU leaders.

"Growth is always a good thing," he snorts on the banalities currently being mouthed by EU leaders. "Being in favour of growth is like being a supporter of world peace." Ouch.

He has more. The current focus on "project bonds" by EU leaders? "This debate annoys me a bit. Every month there are brilliant ideas for combatting the crisis, only for them to disappear the next month. At the moment, that's project bonds. Apart from financing problems, I'm not sure that there's any lack of infrastructure at all hindering growth in these countries. And I've yet to see any serious analysis on the topic."

The predictable bottom line for Weidmann is that eurobonds are a false prospectus, as an answer to the crisis an "illusion." Nor can you fix a debt crisis by heaping up more debt. The countries in trouble need to crack on with the reforms they have promised instead of "non-stop delays."

It's up to Greece to keep its word on the agreements with the troika in return for the bailout. If it doesn't, "the aid should be stopped." And Grexit? "I'm often asked that question. On principle I never answer it."

3.10pm: The eurozone should create a centrally-managed body to deal with troubled banks, an ECB board member said today.

A euro sculpture in front of the European Central Bank building in Frankfurt, central Germany. Photograph: Michael Probst/AP

Peter Praet, who is on the executive board of Europe's central bank, called for a eurozone-wide banking regulator with the money and authority to restructure banks operating across borders.

He also proposed a eurozone-wide deposit insurance programme. Both measures would be funded by the private sector, not the government, so that taxpayers "would be shielded from picking up the bill for future banking crises". He said:

Europe needs to move towards a 'financial union', with a single euro area authority responsible for the supervision and resolution of large and complex cross-border banks. Decisive and far-sighted reforms like these, unrealistic until a short while ago, are now gaining support. Reacting to the pressure of events may seem unattractive, but it may also be the only way forward.

2.57pm: A quick update from my colleague Graeme Wearden, who won the Wincott prize for online financial journalism yesterday, and clearly went on to celebrate last night...

Every blog will have its day, and then feel rather delicate afterwards bit.ly/KoxqjG Perhaps a small beer will help #pop

Latvia, which was forced to take an EU and IMF bailout because of the crisis, hopes to adopt the euro in 2014.

2.36pm: French banks are drawing up contingency plans in case of a Greek exit, Reuters is reporting, citing unnamed sources.

It says Credit Agricole, BNP Paribas and Societe Generale are involved in "heightened preparations". Data from the Bank of International Settlements show that France had lent $44.4bn to Greece at the end of 2011, compared with Germany, which had lent $13.4bn.

2.17pm: The euro has now dropped below $1.25 (although it appears to be bouncing back). There is some benefit of a tumbling euro for anyone heading to the continent, as noted by City Index's chief market strategist.

2.09pm: There's more fighting over the eurobond issue. The Netherlands' caretaker prime minister Mark Rutte has said he would continue to block eurobonds even if Germany changed its mind. He told reporters:

I rule out that Germany will change its opinion but even if it happened, the Netherlands would not participate.

For everything you ever wanted to know on eurobonds, and perhaps a little more, my colleague Phillip Inman has written this essential guide.

2.02pm: The Catalonia story (see 1.44pm) and Bankia's bailout (see 8.48am) have pushed Spain's borrowing costs higher. The yield on the Spanish 10-year bond – the interest it pays on the debt – has reached 6.3% and continues to climb.

1.44pm: Back to Spain, where news is coming out that Catalonia will ask the central government for financial help this year as it is running out of debt financing options. The story has spooked the markets, causing the euro to hit a 22-month low of $1.2505.

Catalonia is Spain's wealthiest region and represents one fifth of the Spanish economy. It has more than €13bn in debt to refinance this year, as well as its deficit. Catalan president Artur Mas said earlier today:

We don't care how they do it, but we need to make payments at the end of the month. Your economy can't recover if you can't pay your bills.

The financial rescue and restructuring of Bankia epitomise the failures of Spanish and eurozone policymaking. The whole process has been like pulling teeth. There have been repeated failures on the part of regulators and the government to tackle the balance sheet problems at Bankia head-on, partly because of continued resistance to injecting more public money into the banking sector but also because of the speed of the deterioration in the asset quality of the bank.

What is critical right now is to draw a line under the losses with a level of state aid that is sufficient and which the markets deem to be sufficient. This is easier said than done given that Spanish bank restructuring is a moving target: the deeper the downturn, the greater the scope for a further deterioration in banks' asset quality.

1.19pm: And for some light relief, The Wall Street Journal has a remarkable story about Japan's finance ministry enlisting the help of a pop group to sell government debt.

Japan's government is turning to pop group AKB48 to help it sell government bonds. Photograph: Nicholas Kamm/AFP/Getty Images

The cash-strapped government will, apparently, use the 90-strong girl group to promote "reconstruction bonds" aimed at financing the rebuilding of the areas hit by the earthquake and tsunami last year. The government plans to issue ¥2.682 trillion of the bonds this year but demand is weak.

The WSJ reports: "The move is part of a broader campaign to use celebrities to stoke interest in the bonds, with Mongolian sumo champion Hakuho the first of four stars to appear in TV commercials, newspaper ads and posters over the next year."

12.58pm: Quick lunchtime wrap. The markets, for the most part, have turned negative after opening higher.

FTSE 100: down 0.44%, or 23 points, at 5327France CAC: down 0.33%German DAX: up 0.06%Spain IBEX: down 0.66%Italy FTSE MIB: down 0.37%

• Shares in Spanish bank Bankia have been suspended at the request of the company. Reports suggest the bank will ask the Spanish government for a €15bn bailout today.

• Surveys out of France and Germany suggest consumer confidence is improving in both countries. German consumers are considerably more optimistic in May, compared with last month, and their willingness to buy increased slightly. In France, optimism about the economic situation continues to edge up.

• There are reports of a German government plan to encourage growth in Europe, under which crisis countries like Greece would receive tax concessions, on condition though that they reform their labour markets, like Germany did in the early days of the euro.

12.38pm: News in from Athens where our correspondent Helena Smith reports yet another twist to the debt crisis.

Greece's caretaker prime minister Panaghiotis Pikrammenos has JUST proved once again that this is a [debt] drama with more contradictions (or perhaps theatrical ploys) than a Molière play. One day after the EU summit, the high court judge as diplomacy dictates, spent the morning back in Athens briefing Greece's head of state president Karolos Papoulias. The summit was he said especially "positive." "I'd like to tell you that contrary to the rumours of the last few days and contrary to what has been written in newspapers, all of our European partners want our country to remain in the euro zone. And because of this we discussed at length taking certain measures that could help our country in the direction of development and combating unemployment," he said.

Readers will recall that addressing reportersin the wee hours of Thursday after the summit, the prime minister revealed that Angela Merkel, the German chancellor had expressed her irriation at all the "scenarios" about Greece exiting the euro zone during a private meeting he had had with her. It has not been lost on commentators here that most of those scenarios have been cultivated by venerable institutions like the Bundesbank in Berlin.

12.34pm: The euro has recovered somewhat from two-year lows against the dollar today but the outlook remains bleak given worries over a Grexit and the risk of contagion.

The euro inched up to $1.2581, from $1.25155, the lowest level since July 2010 yesterday.

Geoff Kendrick, a currency analyst at Nomura, says:

We think if Greece does not exit the eurozone, the euro will see a gradual decline to $1.23 in coming months. But if it does, then we see the euro falling to $1.20 by the end of the second quarter and $1.15 by the end of the third.

12.17pm: A new reality for the eurozone is on the way: Cheviot's David Miller sums up the week.

• Uncertainty is increasing and unlikely to subside until Germany defines the 'new reality' for the eurozone • The fall in UK inflation re-opens the door for QE • Watch out for action by other central banks looking for ways to stimulate growth

EurozoneThe dysfunctional eurozone remains a major concern to all. Recessionary forces are strengthening and no sensible solutions are close to implementation. In Spain, with recession drifting towards depression and unemployment over 25%, investors are heading for the exit, leaving the local banks, funded by the ECB, as the only material buyers of government debt. Voters throughout Europe are exercising their democratic rights and are voting against further austerity.

Uncertainty is increasing and is unlikely to subside until Germany defines the 'new reality' for the eurozone – a move to a more federal Europe with no leavers, partial fragmentation or breakup. No one can be certain about the outcome. Forget market manipulation by international banks and hedge funds; Germany is the ultimate insider.

In Greece, having delivered a protest vote, perhaps the Greek voters will shift back on 17/6, allowing the formation of a government that will cooperate with the EU/ECB/IMF.

Volatile marketsFinancial markets are trading in an increasingly correlated way. One of the reasons for this is that central banks are pursuing similar agendas. After four years of consistent action to support growth and ensure that financial markets are liquid, Q1 saw a series of more hawkish, less accommodative statements.

• In the US, the Federal Reserve indicated that encouraging economic news made further Quantitative Easing less necessary. • In Europe, after the injection of €1 trillion liquidity into the banking system, the ECB, although talking about a "Growth Compact" essentially passed the buck back to Governments. • Finally in the UK, the monetary policy committee, hemmed in by higher than expected inflation, backed away from providing more support.

Only the Bank of Japan talked about making a move in the opposite direction in an attempt to lift the world's third largest economy out of the deflationary mire. Markets sensed that for the moment, they were on their own, which is one of the reasons why since mid-March, trading has been much more erratic.

Now the mood music has changed and QE on both sides of the Atlantic is back on the agenda. Economic growth forecasts are being downgraded due to a combination of less robust growth in China and increasing concern about the eurozone.

11.29am:HSBC - Europe's biggest bank - has warned that the eurozone crisis and increasing regulation could affect its future performance. It said it would deploy capital in markets where it can expect higher growth.

There remain factors affecting our performance that are beyond our immediate control - from the eurozone to the future regulation of the industry. We have gained real traction over the past year in those areas we can control.

11.21am:Greece should be ok if the next tranche of bailout money is delayed for a few weeks, a German finance ministry spokesman told Reuters.

"As far as I am aware, there is no current need for external financing up until beyond the first half of the year," spokesman Martin Kotthaus said at a regular news conference in Berlin. He added that a delay of a few weeks would be "unproblematic".

He also said that Greece's lenders will need a positive report on their reform progress before a planned second tranche of aid worth €4bn is released at the end of June. Greece holds a second election on 17 June after an election in early May produced a messy result. Syrizas, the radical leftist party opposed to the EU-IMF austerity programme, is expected to do well.

11.14am: In France, confidence is improving, according to stats office Insee. According to its confidence index, households' optimism about the economic situation continues to edge up, with the index gaining 1 point in May from April. It has gained 9 points since November but still remains below its long-term average. More here.

11.09am: The Footsie has just turned negative, trading down 2 points at 5348, while European markets are still up. David Jones, chief market strategist, IG Index, says:

Markets have maintained an upbeat tone so far this morning, despite news of the suspension of Spanish bank Bankia. The new management team of Bankia are expected to ask for a €15bn bailout from the government today, and it is thought the suspension is to avoid any further speculation until the results of the meeting are known. Market reaction to this has been negligible, with even the Spanish stock market index still just about positive for the day. So it would appear – for now at least – that investors see Bankia as an isolated case and not the first warning sign for Spain's banking sector as a whole.

Back to the UK, earlier this week the FTSE did have a brief flirtation with the 5400 level so there is definitely scope for some more gains from here – although the combination of the weather, the weekend and Monday's US holiday may see activity fade as the day goes on.

Looking ahead to the US, at the moment we are expecting the Dow around 40 points higher at the open.

The mood among consumers in Germany was very stable in May. Consumers are considerably more optimistic than in the previous month and willingness to buy also increased slightly. Income expectations, however, dropped marginally. Following a revised value of 5.7 points in May, the overall indicator is also forecasting 5.7 points for June.

10.20am: Got an email from Graeme Wearden this morning but he hasn't told me yet how he is feeling. He won the online financial journalist of the year award at the Wincott Awards, and was also commended last night for the Reporting Europe prize. What a star!

10.15am: Over to Greece where our correspondent Helena Smith says an emergency meeting is about to be held at the economy ministry to discuss dramatically declining state revenues.

Clearly alarmed by plummeting budget revenues, attributed in part to the country's political instability following inconclusive elections earlier this month, Greece's caretaker government has decided to take action. Figures released by the state general accounting office show revenues down by almost a third – some €1.35bn - compared to May last year.

The dramatic decline will be the focus of an emergency meeting called by Finance Minister Giorgos Zannias to discuss ways of plugging the budget black hole. Officials have blamed the precipitous fall on the failure of tax authorities to collect revenues – partly because of the uncertainty that has followed Greece political limbo and partly because of cuts to salaries and wages. Ministry officials say they are now considering extending the deadline for the submission of tax returns from 15 June to the end of the month.

Bild is reporting the carefully coordinated contingency plan to enable Greece to leave the euro.

The travel agency TUI is insisting on having a drachma clause in all its contracts, to protect it from financial loss should a currency switch take place.supermarket chain Metro is making plans to allow customers in its Greek shops to pay in Drachma. It's making preparations for pricing labels and cash machines to be changed, according to the paper.

Deutsche Telekom has sent experts to its Greek partner, OTE to help plan for a change from euro to drachma. German banks have reportedly written off all their junk Greek funds and investments so that a Grexit will not affect them. In addition the paper writes, the European Central Bank is working out practical ways in which Euro notes could be switched ie by stamping them with a special magnetic stamp. The ECB also needs to work out what it does with the €40bn worth of Greek bonds it possesses. In the event of Greece going bankrupt, or leaving the eurozone they could end up being worthless.

Der Spiegel is just coming out with a report saying it has information about a German government 6-point plan to encourage growth in Europe, under which crisis countries like Greece would receive tax concessions, on condition though that they reform their labour markets, like Germany did in the early days of the euro.

The plan involves creating special economic zones in the crisis-struck parts of the eurozone. Foreign investors would be lured with tax incentives and more relaxed regulation. The crisis countries would be required to establish German-style privatisation agencies or privatisation funds to sell off/part privatise parts of the public sector.

Sueddeutsche Zeitung is writing on its front page that internally the eurozone partners are very seriously preparing for a Gexit, while externally wanting to create impression that Greece is staying.

9.17am:Shares in Spanish lender Bankia have been suspended "due to circumstances that may affect the normal share trading," the Spanish stock market regulator CMV said this morning. The shares closed down 7.4% yesterday.

Bankia will ask the government for more than €15bn in bailout money when its new management team presents a restructuring plan today, Reuters reported, citing a financial sector source. More from my colleague Giles Tremlett in Madrid here.

8.48am: Today is Bankia day in Spain, with taxpayers likely to discover how much money they must inject into the ailing part-nationalised bank, reports our man in Madrid, Giles Tremlett.

Last night's reports of €15bn are partly the result of the new management team setting a lower valuation for the bank's parent company BFA in a revised version of the 2011 accounts, according to Expansion newspaper.

That may provoke trouble with the 400,000 shareholders who bought into Spain's fourth biggest bank when it floated shares in July.

The move generates losses at BFA, according to Expansion, which explains why the size of the capital injection it needs from the state has shot up. A board meeting today should provide greater clarity.

El País, meanwhile, continues to insist that the government is studying turning Bankia into a massive nationalised bank by merging it with other troubled cajas - the savings banks that have found themselves drowning in toxic real estate left over from a 2008 housing bust.

It says Bankia might absorb Catalunyacaixa and Novagalicia, two of Spain's top ten lenders. Other smaller banks that have been rescued by the state might also be thrown into the pot.

8.40am: Readers are asking about the whereabouts of my esteemed colleague Graeme Wearden, who won the award for online financial journalist of the year at the prestigious Wincott Awards yesterday. He actually has the day off today and I haven't heard from him this morning (it's still early). I'll keep you posted....

8.23am: Well, despite ongoing disputes among EU leaders over the right way forward, European stock markets have opened higher. The FTSE edged up more than 20 points to 5373 in early trading, a 0.45% rise. It is on track for its best weekly performance in a month as investors are snapping up cheap stocks. On Monday, the Footsie hit a six-month low of 5253,92.

8.17am: "The euro bails out," says Simon Smith, chief economist at FxPro. Here are his morning musings on the single currency:

Markets approach the end of what has been a pretty difficult week. The single currency has made news lows for the year (vs. the dollar) and markets have no more faith in the ability of eurozone leaders to quell speculation around a Greek exit as anti-bailout parties retain their lead in the Greek election opinion polls. We've also seen the capitulation of the single currency, something which we talked about earlier this month, where the euro has been the weakest currency in a period of dollar strength, rather than the more traditional high-beta currencies, such as the Aussie. The price action on the single currency this week means that we run the risk of short-covering activity into the weekend. Also, the Swiss franc is worth keeping a small eye on after yesterday's volatility (at least compared to recent activity), which was mostly on the back of - so far - denied rumours of further measures to quell currency strength.

8.07am: So what is all the fuss about Eurobonds about? Read our essential guide here.

8.04am: The FTSE 100 index in London has opened some 14 points higher at 5364, a 0.27% gain.

Oil is steady but is on track for its fourth weekly loss - the longest losing streak since early 2010 - as investors worry over the global economic outlook. Brent crude futures inched up 2 cents to $106.57 a barrel this morning.

7.48am: Good morning and welcome back to our rolling coverage of the eurozone debt crisis and world economy. It's a quiet day for economic data in Europe today apart from consumer confidence figures for Germany and France, so the divisions between EU leaders over how to restore confidence in the euro take centre stage again.

A major rift has opened up between Germany and France for the first time since the crisis began, our Europe editor Ian Traynor reported yesterday from Brussels. The new French president, François Hollande, insists that eurobonds are the only way forward and together with the Italian prime minister, Mario Monti, is piling pressure on German chancellor Angela Merkel.

Michael Hewson, senior market analyst at CMC Markets UK, says the "battle lines" are beginning to get drawn over eurobonds.

It can't be any surprise to see the countries that would benefit the most from lower borrowing costs are looking to leverage off Germany's position as the strongest EU economy, and its triple-A rating.

In any case Germany is not isolated on this issue with Austria, Holland and Finland coming out against the proposals, all countries who don't have large debts.

In Greece, new kids on the political block Syrizas, who oppose austerity measures, are moving ahead in opinion polls at the expense of Samara's New Democracy party who are in favour of the bailout plan.

The FT is reporting that some of Europe's biggest fund managers are dumping euro assets amid growing fears over a Greek exit from the eurozone and more euro turmoil. The euro hit a fresh 22-month low at $1.2514 yesterday.